Which of the Following Is NOT a Valid Restriction or Deficiency

question 9

Multiple Choice

Which of the following is NOT a valid restriction or deficiency of the bootstrap method of estimating the discount function?

• A) The method requires that all bonds have cashflows on the same dates.
• B) If bond cash flows are written as arrays (i.e., as \(\left( c _ { 1 } , c _ { 2 } , \ldots \right)\) on the chosen dates \(t _ { 1 } , t _ { 2 } , \ldots\) ), the method requires that the cash flow arrays of bonds used in estimating the discount function be linearly dependent.
• C) It requires choosing specific bonds on each date and is sensitive to the choice of bonds.
• D) After bootstrapping, It is difficult to value bonds that have cashflows on dates that are in between discount function maturities.

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